These ETFs can whet income investors’ appetite for yield.
Dividends make up a large portion of total returns. When reinvested, they can substantially boost overall performance thanks to the power of compounding. Companies that pay dividends are often blue-chip, profitable, mature businesses with ample cash flows and strong economic moats. Although they might be from more “boring” and traditional industries, such as energy, financials, materials, industrials and consumer staples, their lower volatility compared with tech or growth stocks makes them excellent long-term holdings. Investors can pick and choose their own dividend stocks, but an easier method might be to buy a high-dividend exchange-traded fund, or ETF. These funds hold an underlying portfolio of dividend stocks selected by passive or active criteria and pay out the aggregated dividends as a distribution. Here is a list of the seven best high-dividend ETFs to buy today.
Vanguard High Dividend Yield ETF (ticker: VYM)
A highly popular option for investors seeking above-average yields is VYM, which passively tracks the FTSE High Dividend Yield Index. VYM comprises 446 large-cap U.S. stocks screened for high dividend yields by dividing the annual dividend per share by the latest share price. In terms of exposure, the ETF is weighted toward the financial, health care and consumer staples sectors, with notable holdings including JPMorgan Chase & Co. (JPM), Johnson & Johnson (JNJ) and Procter & Gamble Co. (PG). VYM is highly popular among investors, having attracted assets under management, or AUM, of $55 billion. Like many Vanguard funds, it has a low expense ratio of just 0.06%, or $6 in annual fees for a $10,000 investment. VYM has a 30-day SEC yield of 3.0%.
Schwab U.S. Dividend Equity ETF (SCHD)
Investors looking for a higher concentration of large-cap, blue-chip dividend stocks can opt for SCHD, which passively tracks the Dow Jones U.S. Dividend 100 Index. Compared to VYM, SCHD holds just 104 stocks, making it less diversified. However, SCHD does provide better exposure to value stocks given the low price-to-earnings and price-to-book ratios of its holdings. In fact, Morningstar actually categorizes SCHD as “large-cap value.” Current top holdings include Texas Instruments Inc. (TXN), PepsiCo Inc. (PEP) and Home Depot Inc. (HD). While not as popular as VYM, the fund is still extremely liquid and noteworthy, with AUM of $34 billion. SCHD currently charges an expense ratio of 0.06% and pays a 30-day SEC yield of 3.3%.
Vanguard Dividend Appreciation ETF (VIG)
While VYM focuses on holding dividend stocks with current high yields, VIG focuses on holding dividend stocks with a track record of payout growth. The ETF tracks the S&P U.S. Dividend Growers Index, which screens for companies that have reliably increased their dividend payouts consecutively year over year. Currently, VIG has 289 holdings, and unlike VYM, includes more stocks from the technology sector, such as Microsoft Corp. (MSFT) and Visa Inc. (V). Neither of these stocks have high yields, but both do have a strong track record of dividend growth. Over a long time period, a dividend growth methodology may allow VIG to outperform VYM. The historical performance seems to back this up, with VIG posting a total 10-year average return of 11.9% versus VYM at 11.2%. The ETF also costs an expense ratio of 0.06% and pays a lower 30-day SEC yield of 1.9%.
SPDR Portfolio S&P 500 High Dividend ETF (SPYD)
Investors seeking the brand-name recognition and screening criteria of the S&P 500 can opt for SPYD, which targets the 80 highest-yielding stocks in the S&P 500. The fund achieves this by tracking a new offshoot called the S&P 500 High Dividend Index. This makes SPYD a highly concentrated fund, even more so than SCHD. Despite this, the ETF is actually fairly balanced in terms of composition, with all 82 holdings receiving equal-weight allocations of 1.8% or less. Overall, SPYD is weighted strongly toward the financial (21%), utilities (16%) and real estate (15%) sectors. The fund has one of the higher 30-day SEC yields on this list, at 4.0%, and is only slightly pricier, with a 0.07% expense ratio.
SPDR S&P Dividend ETF (SDY)
SDY is to SPYD what VIG is to VYM. The ETF tracks the S&P High Yield Dividend Aristocrats Index, which selects stocks that have consecutively increased dividends by at least 20 consecutive years as opposed to just filtering for those with high current yields. SDY weighs its 119 holdings based on dividend yield to ensure the highest-yielding ones get better representation. Compared to SPYD, SDY has a lower 30-day SEC yield of 2.4% but a better average annual five-year return of 9.4% versus 7.6%, once again showing how screening for dividend growth may be better than chasing yield. However, the ETF is far more expensive than its cousin, with an expense ratio of 0.35%.
ProShares S&P 500 Dividend Aristocrats ETF (NOBL)
ProShares is best known for its lineup of leveraged and inverse ETFs, but it does have some innovative plain-vanilla offerings, too. A great example is NOBL, which tracks the S&P 500 Dividend Aristocrats Index. Like SDY, NOBL also screens for companies with consecutive years of dividend growth. However, unlike SDY, NOBL takes an even stricter approach, opting for a minimum of 25 years of consecutive dividend increases. This creates a concentrated portfolio of just 64 companies weighted equally at about 1.2% to 1.4% each, with notable holdings including Stanley Black & Decker Inc. (SWK), Clorox Co. (CLX) and Church & Dwight Co. Inc. (CHD). NOBL pays a 30-day SEC yield of 2.1% and charges an expense ratio of 0.35%, with a current average annual five-year return of 10.5%.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
SPHD takes a normal high-dividend yield screen and augments it by also selecting for low ,volatility. This results in a portfolio of dividend stocks from the S&P 500 that have a combination of high yields and lower-than-average beta and standard deviation. The former measures a stock’s sensitivity relative to the market, while the latter measures a stock’s movements around its historical average. Keeping both low results in a low-volatility stock, which combined with high dividends can be a great way to weather a bear market. Currently, SPHD holds just 51 stocks, with the majority comprising large- and mid-cap value stocks. Top holdings include Altria Group Inc. (MO), AT&T Inc. (T) and Kinder Morgan Inc. (KMI). The fund pays a high 30-day SEC yield of 4.0% but costs a slightly pricier expense ratio of 0.30%.
7 of the best high-dividend ETFs:
— Vanguard High Dividend Yield ETF (VYM)
— Schwab U.S. Dividend Equity ETF (SCHD)
— Vanguard Dividend Appreciation ETF (VIG)
— SPDR Portfolio S&P 500 High Dividend ETF (SPYD)
— SPDR S&P Dividend ETF (SDY) ProShares S&P 500 Dividend Aristocrats ETF (NOBL)
— Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
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7 of the Best High-Dividend ETFs originally appeared on usnews.com
Update 08/08/22: This story was published at an earlier date and has been updated with new information.
